Lean & not mean: Simple management most effective

by AccountingWeb on Jun 29 2008printer friendly

By Matt Henkes

Thinking lean when it comes to running a company can bring significant advantages.

Lean thinking is all about maximizing performance efficiency and end product or service value through the elimination of waste. The philosophy was originally developed for the automotive manufacturing industry, but experts claim that its applications are far wider.

Working lean can have a quick and dramatic effect on bottom line profits, say its users. And both the private and public sectors are beginning to take advantage of the improvements in productivity, value and competitiveness that it can achieve. Cost savings of up to 40 percent are not unheard of.

Lean is not a new idea, having been developed by Japanese car manufacturer Toyota during the years following World War II. The term "lean" comes from its end goal, which is to achieve more with less resource via the elimination of waste at every level.

Waste is Your EnemyBarry Holmes, operations director at the Manufacturing Institute, uses the example of making a cup of tea to illustrate how lean thinking can be applied to virtually anything. "It's easy to go into an organization and identify areas for improvement," he says. "Virtually everybody is operating sub-optimal processes."

In any process, the different sections can be split into two areas, "value added" and "non-value added". Any part of a process that drives towards the finished product or service is value added, while any part that doesn’t is non-value added, and therefore waste.

"Anything that involves a process, a series of related steps, has the potential for redesign," says Holmes. "If you boil your kettle for too long, that’s waste through overproduction. You've wasted time through the extra energy used and having to wait. If you have too much milk and it keeps going out of date, that's waste through not managing your inventory properly."

"Typically what we try to do is look at what it is that the company is trying to achieve," he says. "We look at what the organization represents in terms of value streams to its customers. What do customers get out of this business, what do they expect?

"Having identified all of the process inputs from start to finish, we then go on to look at what we think the value added and non-value added steps are within that."

The Five WhysHolmes admits that the analysis involved can be time consuming, but says the benefits are there to be had. The "five whys" generally have a part to play in solving what might seem to be simple problems, but really need some detailed thinking before you get to the root cause. "Generally you've got to ask why five times before you really get an understanding of what the problem is," he says. "You usually have to drill down at least five levels.

"If something does go wrong, you need to ask questions and understand why it’s gone wrong, then put measures in place to make sure that it doesn’t go wrong again," he adds.

Let Demand Lead

The "pull" rather than "push" point of view first pioneered by the Japanese car manufacturers means that, in lean, everything is seen from the customer's point of view. Production is defined by the demand from the customer instead of the push from the manufacturer.

"The driver of lean is all from the customer perspective," says Holmes. "When we talk about value, its value from the customer's viewpoint. So in any project, we look at the ratio of time in process versus value added time.

"It works very well in the private sector," he adds. "If you look at it in the way that waste elimination results directly in costs off the bottom line, and so profits on the bottom line, then it's equally applicable anywhere.

"At its base level, all we're doing is wrapping some tools and techniques around what is fundamentally just common sense," he adds. "It's not like we're getting into any high degree of mathematics or any precise science. It's just the implementation of some standard tools and techniques that dramatically improve productivity no matter what organization or sector it's in."

Thinking Outside the Box: Constant ImprovementImplementing lean is not quite as simple as just smartening up your processes. A massive part of the philosophy is the need for constant improvement. This often means that a new style of thinking has to be adopted across the organization, at all levels.

"Everyone should be able to contribute to continuous improvement," says Holmes. "It should get people to step up to the plate and think about things in an entirely different perspective.

"It's about encouraging creativity and innovation in your people to getting them to look at things differently," he adds. "If you try to impose it as a top-down solution, the chances are that it will fail. You need to get as many people on board as possible so innovation becomes the cultural norm within your organization."

It isn't difficult to see how the philosophy can be applied to non-manufacturing businesses. Roger Parker, of Lean Business Solutions, says that the idea is extremely simple, but dynamic. "What people tend to think is that it only applies to shop floor, front end processes," he says. "But through working in lean, it became pretty obvious to me that it can be applied to any part of business, in any kind of enterprise."

"The first part is really to get them to buy into the idea that they actually do need to improve," he says. "Benefits from the introduction of lean thinking can be seen in businesses in the first month."

Analyzing systems and processes in lean terms can help businesses determine where the pinch points are, and how the performance of certain departments can affect others. "We try to get each department to think of themselves as an individual business," says Parker.

The key seems to be stepping back and looking at the processes used by your organization in a different way. You need to understand what your business is about in the simplest terms. "Ask yourself why it is that you do what you do," advises Holmes. "Yes, you might have done it that way for the last five years. Yes, you might have always done it that way, but what do you really want to do from a customer perspective?

"Take the view of what represents value and what represents waste and start to look at all aspects of the business that really don't represent value," he adds. "That is the essence of it. The basis of lean is removing waste. It extends across any aspect of any business, because every business has got waste."